Independence. Integrity. Involvement.

The Key to Successful Long-Term Investing

I am often asked, “What is the most common error that investors make?” Without hesitation my answer is lack of self-control. Warren Buffett’s mentor Benjamin Graham famously said, “The investor’s chief problem—and even his worst enemy—is likely to be himself.”

On the surface this observation seems rather obvious. But learning to control one’s fear and greed is easier said than done. As one example, successful long-term investors have learned to control their fears by not selling into sustained market drawdowns. Such investors wisely recognize that to do so would only assure permanent loss of capital. It will not be recovered.

In the short run, capital markets can be volatile and trend to excess, but over time they revert back to their historical averages. Serious investors understand this. They remain patient. It is often said, “Real investing is about as exciting as watching paint dry,” enduring year after year of relative boredom. Yes, there are individuals who claim they have “traded” their way to wealth. I consider them speculators and not real investors. They may have a season of success, but often they fall victim to the laws of probability, the friction of trading costs, and higher taxes that result in less than stellar performance.

Remember, ugly markets are a real investor’s friend. Do not panic, and use market declines as opportunities to keep or add to your security positions. One of Warren Buffett’s famous quotes is, “Be greedy when others are fearful and fearful when others are greedy.” Self-control is indeed the key to successful long-term investing.